IOSR Journal of Business and Management (IOSR-JBM) is a double blind peer reviewed International Journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
An Empirical Analysis on the Nature of Relationship between Capital Structure...iosrjce
The financing decision with regard to capital structure theory of finance has been a topic of many
theories and their conflicting output for past many years. This paper aims to analyse the nature of relationship
between the capital structure of a firm and its performance. The data of 40 firms excluding financial services
firms listed on Nifty indices on National Stock Exchange is studied (The composition of 50 firms on Nifty
represents a well branch out index reflecting precisely the overall market conditions). Financial services firms
have been excluded from purview of this paper, as they are in the business of collecting money and investing in
financial assets rather than producing goods, hence follow a unique business valuation model. Further financial
services sector being one of the most sensitive sectors. This paper analyzes a period of 13 years (2001-2014)
covering the phases of a business cycle starting from boom (2001/02-2006/07), recession (2007/08-2008/09)
and then recovery (2009/10-2013/14). The complete business cycle will aid to demonstrate the results more
accurately. This paper also surveys the topical developments in the empirical capital structure research. The
data for a period of 13 years is analysed using descriptive statistics, correlation and multiple regression
techniques. For research purpose, the ratios such as debt-equity ratio, debt-asset ratio and long term debt are
taken as independent variables whereas Net Profit, Net Profit Margin, ROCE, ROE and ROA are the ratios
taken as dependent variables.
An Empirical Analysis on the Nature of Relationship between Capital Structure...iosrjce
The financing decision with regard to capital structure theory of finance has been a topic of many
theories and their conflicting output for past many years. This paper aims to analyse the nature of relationship
between the capital structure of a firm and its performance. The data of 40 firms excluding financial services
firms listed on Nifty indices on National Stock Exchange is studied (The composition of 50 firms on Nifty
represents a well branch out index reflecting precisely the overall market conditions). Financial services firms
have been excluded from purview of this paper, as they are in the business of collecting money and investing in
financial assets rather than producing goods, hence follow a unique business valuation model. Further financial
services sector being one of the most sensitive sectors. This paper analyzes a period of 13 years (2001-2014)
covering the phases of a business cycle starting from boom (2001/02-2006/07), recession (2007/08-2008/09)
and then recovery (2009/10-2013/14). The complete business cycle will aid to demonstrate the results more
accurately. This paper also surveys the topical developments in the empirical capital structure research. The
data for a period of 13 years is analysed using descriptive statistics, correlation and multiple regression
techniques. For research purpose, the ratios such as debt-equity ratio, debt-asset ratio and long term debt are
taken as independent variables whereas Net Profit, Net Profit Margin, ROCE, ROE and ROA are the ratios
taken as dependent variables.
Impact of Firm Specific Factors on Capital Structure Decision: An Empirical S...Waqas Tariq
Abstract This study attempts to explore the impact of firm specific factors on capital structure decision for a sample of 39-firm listed on Dhaka Stock Exchange (DSE) during 2003-2007. To achieve the objectives, this study tests a null hypothesis that none of the firm’s specific factors namely profitability, tangibility, non-debt tax shield, growth opportunities, liquidity, earnings volatility, size, dividend payment, managerial ownership, and industry classification has significant impact on leverage using estimate of fixed effect model under Ordinary Least Square (OLS) regression. Checking multicollinearity and estimating regression analysis through Pearson correlation and autoregressive mode respectively this study found that profitability, tangibility, liquidity, and managerial ownership have significant and negative impact on leverage. Positive and significant impact of growth opportunity and non-debt tax shield on leverage has been found in this study. On the other hand size, earnings volatility, and dividend payment were not found to be significant explanatory variables of leverage. Results also reveal that total debt to total assets ratios are significantly different across Bangladeshi industries. Keywords: Capital structure, Leverage, Firm’s specific factors, Dhaka Stock Exchange Bangladesh.
The Effect of Capital Structure on Profitability of Energy American Firms:inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This paper investigates the relationship between working capital management and financial performance of Pharmaceuticals and Textile firms listed at the Dhaka Securities Exchange in Bangladesh. The data analysis was carried on ten Pharmaceuticals and Textile firms for a period of 2013 to 2017. Secondary Data was analyzed by applying Descriptive Statistics, Regression and Correlation analysis to findthe relationship of current ratio, inventory conversion period and average payment period with Return on Asset. The findings indicate that the Pharmaceuticals and Textile firms’ performance is influenced by the variables relating to working capital. There is a positive relationship between profitability and current ratioand Inventory Turnover period shows a negative relationship with profitability but Average payment period shows insignificant impact on profitability. The study concludes that there exists a relationship between working capital managementand financial performance of Pharmaceuticals and Textile firms in Bangladesh. The study recommends that for the Pharmaceuticals and Textile firms to remain profitable, they should employ working capital management practice that will help in making decisions about investment mix and policy, matching investment to objective, asset allocation for institution and balancing risk against profitability.
International Journal of Engineering Research and DevelopmentIJERD Editor
Electrical, Electronics and Computer Engineering,
Information Engineering and Technology,
Mechanical, Industrial and Manufacturing Engineering,
Automation and Mechatronics Engineering,
Material and Chemical Engineering,
Civil and Architecture Engineering,
Biotechnology and Bio Engineering,
Environmental Engineering,
Petroleum and Mining Engineering,
Marine and Agriculture engineering,
Aerospace Engineering.
This study examined the relevance of the information in the financial statements to test the impact of
earnings management practices to the relevance of financial statement information. The financial information
used was earnings and book value. This research separates proxy earning management discretionary accruals into
short-term and long-term discretionary accruals. The test results against a company sample 822 listings in
Indonesia stock exchange (IDX) during the period 2013 – 2015 proves that earnings and book value of equity
does not lose its relevance as indicators for assessing the performance of a company. The study also found that,
earnings management does not have any impact on the relevance of earnings and book value of equity when
earnings management is done through short-term and longterm discretionary accruals.
Impact of Firm Specific Factors on Capital Structure Decision: An Empirical S...Waqas Tariq
Abstract This study attempts to explore the impact of firm specific factors on capital structure decision for a sample of 39-firm listed on Dhaka Stock Exchange (DSE) during 2003-2007. To achieve the objectives, this study tests a null hypothesis that none of the firm’s specific factors namely profitability, tangibility, non-debt tax shield, growth opportunities, liquidity, earnings volatility, size, dividend payment, managerial ownership, and industry classification has significant impact on leverage using estimate of fixed effect model under Ordinary Least Square (OLS) regression. Checking multicollinearity and estimating regression analysis through Pearson correlation and autoregressive mode respectively this study found that profitability, tangibility, liquidity, and managerial ownership have significant and negative impact on leverage. Positive and significant impact of growth opportunity and non-debt tax shield on leverage has been found in this study. On the other hand size, earnings volatility, and dividend payment were not found to be significant explanatory variables of leverage. Results also reveal that total debt to total assets ratios are significantly different across Bangladeshi industries. Keywords: Capital structure, Leverage, Firm’s specific factors, Dhaka Stock Exchange Bangladesh.
The Effect of Capital Structure on Profitability of Energy American Firms:inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This paper investigates the relationship between working capital management and financial performance of Pharmaceuticals and Textile firms listed at the Dhaka Securities Exchange in Bangladesh. The data analysis was carried on ten Pharmaceuticals and Textile firms for a period of 2013 to 2017. Secondary Data was analyzed by applying Descriptive Statistics, Regression and Correlation analysis to findthe relationship of current ratio, inventory conversion period and average payment period with Return on Asset. The findings indicate that the Pharmaceuticals and Textile firms’ performance is influenced by the variables relating to working capital. There is a positive relationship between profitability and current ratioand Inventory Turnover period shows a negative relationship with profitability but Average payment period shows insignificant impact on profitability. The study concludes that there exists a relationship between working capital managementand financial performance of Pharmaceuticals and Textile firms in Bangladesh. The study recommends that for the Pharmaceuticals and Textile firms to remain profitable, they should employ working capital management practice that will help in making decisions about investment mix and policy, matching investment to objective, asset allocation for institution and balancing risk against profitability.
International Journal of Engineering Research and DevelopmentIJERD Editor
Electrical, Electronics and Computer Engineering,
Information Engineering and Technology,
Mechanical, Industrial and Manufacturing Engineering,
Automation and Mechatronics Engineering,
Material and Chemical Engineering,
Civil and Architecture Engineering,
Biotechnology and Bio Engineering,
Environmental Engineering,
Petroleum and Mining Engineering,
Marine and Agriculture engineering,
Aerospace Engineering.
This study examined the relevance of the information in the financial statements to test the impact of
earnings management practices to the relevance of financial statement information. The financial information
used was earnings and book value. This research separates proxy earning management discretionary accruals into
short-term and long-term discretionary accruals. The test results against a company sample 822 listings in
Indonesia stock exchange (IDX) during the period 2013 – 2015 proves that earnings and book value of equity
does not lose its relevance as indicators for assessing the performance of a company. The study also found that,
earnings management does not have any impact on the relevance of earnings and book value of equity when
earnings management is done through short-term and longterm discretionary accruals.
Earnings Management, the Influence of Size, Indebtedness and Performance The ...ijtsrd
This study attempts to contribute to the research literature in the field of management of earnings results and how it is put into practice by Moroccan listed companies. The main question that the paper attempted to investigate is whether these companies managers use accounting results management in an opportunistic way. The study was conducted on a sample of 54 companies on the Casablanca Stock Exchange between 2014 and 2016.The findings indicate that the guarantee of a stock market valuation to influence investors decisions is not at the heart of results management in Moroccan listed companies. Nevertheless, the importance of the size factor and the satisfaction of the conditions imposed by the creditors to justify the level of the discretionary behavior of the managers in terms of accounting and financial information are noteworthy. Baghar Nezha "Earnings Management, the Influence of Size, Indebtedness and Performance: The Case of Moroccan Listed Companies" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-2 , February 2019, URL: https://www.ijtsrd.com/papers/ijtsrd21387.pdf
Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/21387/earnings-management-the-influence-of-size-indebtedness-and-performance-the-case-of-moroccan-listed-companies/baghar-nezha
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
The Relationship between Board Tenure and Financial Performance. The Allegian...IJMREMJournal
PURPOSE: The purpose of this paper was to examine the relationship between the tenure of the board and
financial distress of listed firms in Kenya.
DESIGN/METHODOLOGY: The research design used in this study was exploratory design. The study employed
panel regression analysis and simultaneously used pooled regression and random effects on sample size of 57
listed firms in Kenya during the period of 2007-2016.
FINDINGS: The study found that board tenure was found to be negatively and significantly related to financial
performance (β=-0.091; p<0.01).
THEORETICAL IMPLICATIONS: This study adds value to theory by studying the effect of tenure on
financial performance by updating empirical literature from a developing country.
ORIGINALITY: The paper fills an important gap in academic literature by providing insights into the role of
board tenure in performance of firms particularly in developing economies. In addition, given the increasing
collapsing of companies in developing nations, this paper provides policy makers with evidence on the
implications of board composition on financial distress.
Impact of Corporate Governance on Firms’ Financial Performance: Textile Secto...inventionjournals
Purpose: The basic standard of this article is to find out the outcome of corporate governance on firm’s profitability in textile sector of listed companies in Pakistan. Methodology: The data are collected from respective textile sector annual reports from 2005 to 2014.The results of different variables arise by using different techniques like descriptive, correlation and regression in using software of E-views in this study. Findings: These results of study explain that corporate governance and firm’s financial performance shows positive relationship between each other. This indicates that in textile sectors adopting corporate governance and plays a significant role in textile sectors. Research limitations: This study restricts by fewer digit of determinantslinked corporategovernance and data gathered from 2005 to 2014 were addressed, which restrictions the overview of the result. Further research can be conduct by using more variables and more years for finding more in future. Originality: This study shows that the firm’s performance has increased by using corporate governance in textile sector firms.
Impact of Corporate Governance on Firms’ Financial Performance: Textile Secto...inventionjournals
Purpose: The basic standard of this article is to find out the outcome of corporate governance on firm’s profitability in textile sector of listed companies in Pakistan. Methodology: The data are collected from respective textile sector annual reports from 2005 to 2014.The results of different variables arise by using different techniques like descriptive, correlation and regression in using software of E-views in this study. Findings: These results of study explain that corporate governance and firm’s financial performance shows positive relationship between each other. This indicates that in textile sectors adopting corporate governance and plays a significant role in textile sectors. Research limitations: This study restricts by fewer digit of determinantslinked corporategovernance and data gathered from 2005 to 2014 were addressed, which restrictions the overview of the result. Further research can be conduct by using more variables and more years for finding more in future. Originality: This study shows that the firm’s performance has increased by using corporate governance in textile sector firms.
Respond to... Companies often try to keep accounting earnings .docxwilfredoa1
Respond to...
Companies often try to keep accounting earnings growing at a relatively steady pace in an effort to avoid large swings in earnings from period to period. They also try to manage earnings targets. Reflect on these practices and discuss the following in your discussion post.
Are these practices ethical?
According to Ortega & Grant (2003), “earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company to influence contractual outcomes” (p. 51). Because these practices are used to alter the financials of a firm from actuality, then, no, these practices are not ethical, however there are common practice and, in some circumstances, acceptable.
What are two tactics that a financial manager can use to manage earnings?
Financial managers at times will use certain tactics to manage earnings. Two tactics that financial managers use to manage earnings are the Big Bath technique and the cookie jar reserve. The big-bath technique consists of taking a one-time, large write-offs or restructuring charges against income in order to reduce assets to further lower future expenses (Hope & Wang, 2018). The use of the big bath method can affect a firms’ competitiveness as it is essentially reporting a loss, which can have negative results on stock prices. The other method is the cookie jar reserve occurs when a company saves money from successful years and draws from that money and applies it to bad years in order to bolster earnings reports (CPA Journal, 1999). The method is used as way to smooth income and appear financially better when in actuality the company is having a bad year.
What are the implications for cash flow and shareholder wealth?
Ultimately, financial manager’s job is to maximize profit, because of this conflict of interest may occur. According to Chalak & Mohammadnezhad (2012), “with respect to increase shareholder wealth, free cash flows are of importance because allow managers to seek growth opportunities which increase share value” (p. 430). Therefore, the use of the techniques in the regards to implications for cash flow and shareholder wealth can be detrimental due to unreliable and inaccurate information, which occurs from managers intentionally influencing actual financials.
Using the financial balance sheet as displayed in the text, provide an example of how purchasing an asset or issuing stocks or bonds could potentially impact earnings targets.
When purchasing an asset or issuing stocks earnings targets are impacted due the changes in cash flow. For instance, when purchasing assets, the cash accounts will decrease the purchase amount, while issuing stocks or bonds increases by the amount received for the purchased stocks. These actions can a company to miss or exceed its earnings targets by the amounts of cash flow coming in or going ou.
Potential Big Bath Accounting Practice in CEO Changes (Study on Manufacturing...Mercu Buana University
This Research aims to compare the earnings management which is big bath accounting model while CEO Changes in Indonesia. This research is using Secondary data which is Financial Statement from the Indonesian Stock Exchange. CEO change is classified either as routine or non-routine based on RUPS (General Shareholders Meeting) and RUPSLB (Extraordinary General Shareholders Meeting) information. The purposive sampling was used in this research by sampling 14 listed company of CEO Change non-routine and 34 listed company of CEO Change routine. These samples are observed from 2004 to 2014. To identify the big bath accounting practice. Although CEO Change non-routine made a high correlation in this study, the study provides there is no difference in earnings management big bath accounting model while CEO Changes between routine and non-routine changes.
Corporate Governance and Earning Management in Saudi ArabiaAkashSharma618775
The research paper examines the corporate governance and earning management in Saudi Arabia. It
explores certain studies that worked in different areas and discusses their findings. The essential goal of this paper
is to exactly research the impact of the late corporate administration controls presented by Capital Market
Authority (CMA) on compelling income administration hone in Saudi Arabia. Corporate governance theory is
discussed here that elaborates the procedures of organization and different strategies. At that point speculations
are tried utilizing multivariate procedure to figure out whether corporate administration qualities essentially
oblige optional accumulations. The paper also discusses literature of previous studies and some methodologies are
discussed that are important. Three different types of methodologies are described here that are related to
organization. At the end, conclusion is presented.
Corporate Governance and Earning Management in Saudi ArabiaAkashSharma618775
The research paper examines the corporate governance and earning management in Saudi Arabia. It
explores certain studies that worked in different areas and discusses their findings. The essential goal of this paper
is to exactly research the impact of the late corporate administration controls presented by Capital Market
Authority (CMA) on compelling income administration hone in Saudi Arabia. Corporate governance theory is
discussed here that elaborates the procedures of organization and different strategies. At that point speculations
are tried utilizing multivariate procedure to figure out whether corporate administration qualities essentially
oblige optional accumulations. The paper also discusses literature of previous studies and some methodologies are
discussed that are important. Three different types of methodologies are described here that are related to
organization. At the end, conclusion is presented.
The Analysis of Earning management and Earning Response Coefficient: Empiric...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Cash BudgetThe working capital management consist of the relatio.docxtroutmanboris
Cash Budget
The working capital management consist of the relationship of the company short-term liabilities & assets. Its goal is to confirm that an organization can maintain its operations in addition has enough capacity to satisfy all evolving short-term debt also potential operational expenses. The working capital management includes managing accounts payable, receivable, cash, and inventories (Studyfinance, 2020, p. para 1). As per the scenario, we take two components: inventory management and cash budget.
Cash Budget
A cash budget fixes the expected cash sources as well as uses it in a future. This budget used to measure either operations of the company and other activities can produce sufficient cash to fulfill the expected requirements of cash. Unless, then management needs to find alternative sources of financing. The cash budget inputs come from various other budgets. The cash budget enumerates debt, investments, and both interest expense and income which result in financing budget.
Example
The example demonstrates that the company is positioned in a negative cash situation by an excessively large dividend in the second cash budget week, combined with a major asset purchase the next week. Paying such a high dividend may be a challenge for lenders who don't like issuing loans; therefore, businesses can use the money to pay their shareholders and thus undermine their ability to repay the loans. Therefore, accepting a minimal dividend payout and eliminating a negative cash position can be better for the company (Accountingtools, 2019, p. para 2).
Inventory Management
Inventory management is refers to that process which includes storing, organizing, as well as using the inventory of a company. These contain the management of components, finished products, raw materials, as well as processing and warehousing such items. For companies through complex manufacturing processes and supply chains, balancing the inventory shortages and gluts risks is specifically difficult (Hayes, 2019, p. para 1).
References
Accountingtools. (2019). Cash budget. Retrieved from accountingtools: https://www.accountingtools.com/articles/2017/5/15/cash-budget
Hayes, A. (2019). Inventory management. Retrieved from investopedia: https://www.investopedia.com/terms/i/inventory-management.asp
Studyfinance. (2020). Working capital management. Retrieved from studyfinance: https://studyfinance.com/working-capital-management/
Plan Proposal Template
The following is a guide to organize your assignment. Please be sure to remove the guiding questions and comments for each section. You are expected to write in a professional and academically appropriate manner, including using correct APA style and citations throughout.
Propose a plan, referencing relevant existing and newly created processes, to implement an intervention to improve quality and safety, and reduce costs in the context of a chosen health problem.
· Introduce a general summary of the project plan that you .
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RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
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Comparing Linear Accrual-Based Models in Predicting Earnings Management of Tehran Securities Exchange accepted Firms
1. IOSR Journal of Business and Management (IOSR-JBM)
e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 17, Issue 12 .Ver. I (Dec. 2015), PP 60-64
www.iosrjournals.org
DOI: 10.9790/487X-171216064 www.iosrjournals.org 60 | Page
Comparing Linear Accrual-Based Models in Predicting Earnings
Management of Tehran Securities Exchange accepted Firms
SajjadHabibi1
, Mahmoud nozarpour2
1
Master Student of Department of accounting Persian Gulf International Branch-Islamic Azad University-
Khorramshahr- Iran.
2
Master Student of Department of accounting Persian Gulf International Branch-Islamic Azad University-
Khorramshahr- Iran
Abstract:This research investigates linear accrual models to evaluate their capability in predicting earnings
management. Discretionary accruals are as earnings management index. Researchers use numerous models to
predict earnings management in firms. Four models of discretionary accruals including performance model
(Kothari) on asset return, modified performance model (Kothari) on asset return, performance model (Kothari)
on delayed asset return, and modified performance model (Kothari) on delayed asset return are compared in
this study. Applied data of this research is of 90 firms accepted in Tehran securities exchange during 2008-
2012.Research hypotheses have been tested using multi-variable regression and panel data econometrics.
Results showed that modified performance model on assets return compared to other investigated models is
more capable in predicting discretionary accruals to predict earnings management among accepted firms of
Tehran securities exchange.
Keywords: discretionary accruals, earnings management, discretionary accruals linear models
I. Introduction
Earnings are one of the most fundamental elements of financial statements which has been always
noted and mentioned as a criterion to evaluate the financial performance and efficiency of the business unit.
Accounting is an appropriate index to predict future cash flows, but since earnings are consisted of cash and
accruals and accruals can be controlled by management to some extent, management is able to manipulate
earnings. When net earnings is managed or manipulated in the firm, it cannot have a significant relationship
with stock price and be effective on users’ expectation. Thus, the fact that when earnings can meet financial
statements’ users’ expectation and predictions better is a question for researchers (Beneish& Nichols, 2005).
Separating ownership from management in joint stock corporations creates this potential possibility for
managers to transfer at least a part of other beneficiary groups’ wealth of the firm to themselves, because
managers have access to information that other people do not have any access at least to a part of it. Moreover,
managers are able to manipulate or manage the mentioned information for their own favor because of supplying
and sending part of financial information (Dastgir&Nazemi, 2006).
Earnings management has had a very important role in the way of financial statements presentation and
classification of their items as a conscious selected strategy by management to achieve specific purposes and
applying it, depending on firm’s nature based on size, type, industry, capital structure, social status, and earnings
management issue is different. Leveling earnings, managers are able to affect stock return; accordingly, they
achieve purposes such as management rewards, getting bank loans, capital increasing, affecting capital market,
and job safety. If earnings management is not applied well, not only the mentioned purposes are supplied, but
can have adverse consequences. Different approaches of earnings management and their potential effects for
beneficiaries can be used as a guide for management to provide financial statements.
II. Statement of the problem
Accounting earnings are one of the most important performance indices used in a lot of economic
decision makings including stock accreditation, performance assessment, managers reward determining and
dividends. These decision makings can be effective in transferring the sources between different people;
accordingly, they are highly noted in capital market. In terms of interests conflict in economic environment
including interests’ conflict between shareholders and managers there is always this possibility that managers
manipulate earnings (Wu, 2014).
It should be noted that both groups of managers and owners try to increase their interests. Financial
analysts consider earnings as a fundamental factor in their own investigations and judgments. Thus, to show a
desirable image of firm and reduce the investment risk managers have a strong motivation to manage the
earnings (Bhundia, 2012). Although there are opportunist and signaling motivations as well as better
information presentation to the market in management topic, opportunist motivation threats capital market.
2. Comparing Linear Accrual-Based Models in Predicting Earnings Management of Tehran…
DOI: 10.9790/487X-171216064 www.iosrjournals.org 61 | Page
Earnings management is an activity that, based on full disclosure view, can be with undesirable consequences.
These activities can lead to earnings increasing or decreasing according to perpetrators’ motivation. Risky
nature of these threats an numerous consequences resulted from earnings management have inspired researchers
to present models for measuring and identifying earnings management signs that their power is not identical.
These models are mostly based on accounting variables (especially accruals), because they are used in earnings
management.
Earnings include accruals and cash flow. The difference between earnings and cash flow which is
generally the result of accounting conditions, time, and the way of costs and income identification is called
accruals. Firms are free in identifying these accruals and management flexibility creates opportunities for
earnings management implementation. These accruals are in two parts: non-discretionary accruals and
discretionary accruals.
Non-discretionary accruals are out of management controlling and show business factors. In fact, this
part reflects the non-manipulated accounting accruals. Discretionary accruals can be defined as the difference
between net earnings and cash flow resulted from operational activities of the firm. They are actually the
accruals controlled by management.
In 1992 Jones’s model in order to estimate accruals was proposed and in 1995 it was revised and
modified by De Chow et al and then defined as Jones’s modified model. In fact, the superiority of this model
over Jones’s model is this hypothesis that with subtracting the changes of receivables from total income the
considered income changes are in cash; accordingly, a better estimation of abnormal accruals can be obtained.
The imposed modification on Jones’s model has been for obviating the existing shortcomings in Jones’s model.
The difference between discretionary and non-discretionary accruals is very important in this model and
dividing variables by assets sum it has been tried to remove the inhomogeneity of Jones’s model (1992) to
establish stability among the periods. Adding return of assets (ROA) to Jones’s modified model has been
implemented based on the research of Kothari et al (2005). They have expressed their motivation the research of
De Chow et al (1998) as proposers of simple models of income, cash flows, and accruals. In their model, De
Chow et al (1998) showed that income increasing as a part of accruals can be the result of firm’s investment in
working capital and to increase firm’s d growth. As a result, increasing accruals of working capital can be
predicted through sales growth. Accordingly, firm’s performance can affect the model’s accruals and it is better
to be controlled in accruals estimating (Cheng et al, 2012).
Adding cash flow resulted from firm’s operational activities by Cheng et al (2012) caused better firm’s
performance measurement. It has been assumed in Jones’s model that sales income is non-discretionary. The
weakness of the mentioned models is that if earnings are controlled through discretionary incomes, Jones’s
model eliminates a part of managed earnings. To remove Jones’s model limitation, De Chow et al (1995)
modified income through receivables changes (Cited by Wu, 2014).
III. Review of the literature
Nourvash et al (2005) investigated earnings management in Tehran securities exchange accepted firms
and results of their study showed that large firms in Iran have also managed earnings and debt increasing
motivates more application of this management.
Mashayekhi et al (2005) investigated the role of discretionary accruals in earnings management of
Tehran exchange securities accepted firms. Results indicated that earnings management has been applied in
investigated firms. In fact, these firms management has increased earnings through increasing discretionary
accruals in order to reduce cash obtained from operations which indicate the weak performance of the business
unit.
Nikoumaram et al (2009) evaluated accruals-based models to explore earnings management and results
of their study showed that among the investigated models, regression estimation-based models have been more
efficient than other three models of Hilly, De Angelo, and Modified De Angelo. Among regression models,
Jones’s (1991) main model is less efficient to explain earnings management. About next editions of Jones’s
model, Jones’s modified model (1995), simple model of De Chow (2002), comprehensive model of De chow
(2002), and removing inflation versions had acceptable efficiency to explore earnings management. Ball and
Shivakumar (2006) extended the model considering non-linear relationship between accruals and firm’s
performance. They use assets return for firm’s performance, and do not accept non-linear relationship between
accruals and performance and Jones’s both models (main and modified) are less confirmed by them. For
performance they used the ratio of earnings to price, firm size, and operational cash flow. Kothari’s model
assumed that firms’ discretionary accruals are comparable with assets return in similar industry. Thus, if there
are a few firms in an industry or the changing of an industry is large, measurement error has been created.
Haushen (2007) investigated this issue that if combining non-linear accruals with discretionary models
improves models’ performance. Results show that a specific non-linear model improves models’ performance in
3. Comparing Linear Accrual-Based Models in Predicting Earnings Management of Tehran…
DOI: 10.9790/487X-171216064 www.iosrjournals.org 62 | Page
showing earnings management existence. Also, results show that more advanced model which is a combination
of a performance measurement, a cost variable, and future’ growth size is better than other models.
.
IV. Research hypotheses
First hypothesis: Kothari’s linear performance model on assets return is the strongest model to estimate
discretionary accruals in order to predict earnings management.
Second hypothesis: Kothari’s linear performance model on delayed assets return is the strongest model
to estimate discretionary accruals in order to predict earnings management.
Third hypothesis: Kothari’s linear performance modified model on delayed assets return is the
strongest model to estimate discretionary accruals in order to predict earnings management.
Fourth hypothesis: Kothari’s linear performance modified model on delayed assets return is the
strongest model to estimate discretionary accruals in order to predict earnings management.
V. Research experimental variables and models
Jones’s last modified versions had been presented by Kothari et al (2005) in order to separate
discretionary and non-discretionary accruals are as following:
1)Performance model (Kothari) on assets return
ACt =β0 +β1(1/TAt-1) + β2(∆Salest) + β3(PPEt) + β4(ROAt) + ԑt
2) Performance model (Kothari) on delayed assets return
ACt =β0 + β1(1/TAt-1) +β2(∆Salest) + β3(PPEt) + β4(ROAt-1) + ԑt
3) Performance modified model (Kothari) on assets return
ACt =β0 + β1(1/TAt-1) +β2(∆Salest - ∆ARt) + β3(PPEt) + β4(ROAt) + ԑt
4) Performance modified model (Kothari) on delayed assets return
ACt =β0 + β1(1/TAt-1) +β2(∆Salest - ∆ARt) + β3(PPEt) + β4(ROAt-1) + ԑt
ACtis sum of accruals (earnings before unexpected items minus operational cash flow) in year t for investigated
firm i.
TAt-1is the sum of assets in year t-1 for investigated firm i.
∆Salestis sales changes in year t for investigated firm i.
PPEt is the gross amount of properties, machinery, and equipment in year t for investigated firm i.
∆ARtis accounts and receivables’ changes in year t for investigated firm i.
ROAtis net earnings divided by sum of assets in year t.
ROAt-1is net earnings divided by assets sum in year t-1.
£tis sum of regression error. It is assumed that they are uncorrelated cross-sectional and have normal
distribution with mean of zero.
VI. Statistical population and sample
Statistical population of this research includes all firms accepted in Tehran securities exchange from
the beginning of 2008 to the end of 2012 (448 firms).
To determine the statistical sample in this research no specific relation has been applied to estimate
sampling and sample volume, but systematic elimination method. In other words, following conditions have
been imposed by researcher:
In order to bring comparability to the items, firms that their fiscal year end is not two last days of the
year have been eliminated.
Then, banks, financial institutes, and financial investment firms (because of their different activity
nature from other business units) have been eliminated, because these firms have higher debts, based on their
activity, than other ones, while these debts increasing does not express more risks.
At this stage, firms that have not had all required information during the investigation period have been
eliminated.
4. Comparing Linear Accrual-Based Models in Predicting Earnings Management of Tehran…
DOI: 10.9790/487X-171216064 www.iosrjournals.org 63 | Page
VII. Descriptive statistics of variables
In order to identify research population better and more familiarity with variables, data should be
described before statistical analysis. First, using raw data, research variables value are calculated and then
descriptive statistics, independent, and dependent variables which include mean, mode, maximum, minimum,
and standard deviation of data have been calculated and presented in table 1.
Table-1. descriptive statistics
Variables Mean Mode Max Min STD
ACt 0.1969 0.2047 0.2784 -.01276 0.0689
1/At-1 0.0015 0.0021 0.0963 0.0003 1.1934
Salest∆ 0.2318 0.2296 0.6752 -0.2139 0.4127
ARt∆ 0.1653 0.1873` 0.2866 -0.0096 0.5373
PPEt 0.3256 0.3765 0.6794 0.1153 0.2935
ROAt 0.2603 0.2782 0.6278 -0.0927 0.1942
ROAt-1 0.2498 0.2677 0.4998 -0.0927 0.1893
Appropriate model determining test in panel data
To investigate the type of model testing and different time period of panel data, F-Limer (Chow) and
Haussmann tests have been used. Results of these tests have been presented in table 2.
Table-2.appropriate model determination results in panel data
Tested model Test type Test statistics p-value Result
Model 1 Chow 3.7834 0.0215 Random effect model
Haussmann 1.6345 0.3983
Model 2 Chow 3.9784 0.0128 Random effect model
Haussmann 1.2438 0.4256
Model 3 Chow 4.6289 0.0065 Random effect model
Haussmann 0.9106 0.4729
Model 4 Chow 3.2241 0.0237 Random effect model
Haussmann 1.0786 0.4573
Results of Chow test about models one to four have indicated that Haussmann test is needed.
Haussmann results for this models show that H0 has not been rejected. Thus, random effect method is a more
appropriate option to estimate models three to six.
VIII. Results of hypotheses testing
Results of performance models significance have been provided in table 3. As it is seen F has been
significant in all models.
Table-3.regression model results of performance models
Model 3ACt =𝛃0 +𝛃1(1/TAt-1) + 𝛃2(∆Salest) + 𝛃3(PPEt) + 𝛃4(ROAt) + £t
Model 4ACt =𝛃0 + 𝛃1(1/TAt-1) +𝛃2(∆Salest) + 𝛃3(PPEt) + 𝛃4(ROAt-1) + £t
Model 5ACt =𝛃0 + 𝛃1(1/TAt-1) +𝛃2(∆Salest- ∆ARt) + 𝛃3(PPEt) + 𝛃4(ROAt) + £t
Model 6ACt =𝛃0 + 𝛃1(1/TAt-1) +𝛃2(∆Salest- ∆ARt) + 𝛃3(PPEt) + 𝛃4(ROAt-1) + £t
Models 3 testing Model 4 testing Model 5 testing Model 6 testing
Parameter Ratio t-static Parameter Ratio t-static Parameter ratio t-static Parameter Ratio t-static
Fixed
ratio
β0 0.0842 4.2166 β0
0.32-
88
2.71-
53
β0
0.23-
86
6.65-
48
β0
0.04-
73`
2.54-
67`
1/At-1 β1 0.1148 3.9980 β1 0.2481 4.9326 β1 2.4369 4.5638 β1 0.2186 3.4879
Salest∆ β 2
1.37-
79
6.04-
27
β 2
0.01-
77
8.28-
79
ARt∆-
Salest∆
β 2
0.08-
18
2.62-
24`
β 2
0.24-
36
2.43-
36
PPEt β 3 0.1829 4.0878 β 3 0.0342 2.2145 β 3 0.0028 6.0954 β 3 0.2736 3.2433
ROAt
β 4
0.01-
46
3.32-
61
β 4
1.37-
82
2.93-
08
ROAt-1 β 4 1.4238 6.2134 β 4 0.4073 4.2887
Adj R2 0.3146 0.2644 0.4236 0.3365
F-static 6.2867 6.4439 8.3426 6.3761
F (p-
value)
0.0000 0.0000 0.0000 0.0000
D-W 1.8891 1.9286 2.7862 2.2238
5. Comparing Linear Accrual-Based Models in Predicting Earnings Management of Tehran…
DOI: 10.9790/487X-171216064 www.iosrjournals.org 64 | Page
To tests research hypotheses, Kothari’s performance models estimated before are used. To do this, the
adjusted determining coefficient 1 obtained from regression model is used. Determining coefficient indicates the
percentage of dependent variable changes explained by independent variables. The more this value, the more
correlation between dependent variable and independent ones will be. This issue in the earnings management
model indicates the model capability in better recognition of discretionary accruals. Thus, to determine a model
which has the most capability in recognition of discretionary accruals, adjusted determining coefficients
obtained from models’ estimation are compared.
The adjusted determining coefficient obtained from model one to four is 0.31, 0.26, 0.42, and 0.33,
respectively. It is seen that the most adjusted determining coefficient is related to third model (0.42), and the
least one is for the second model (0.26).
Results showed that adjusted determining coefficient obtained from the third model has been more than
other models. Thus, it can be claimed that the third model (i.e. Kothari’s modified performance model on assets
return) is more capable than other investigated models in recognizing discretionary accruals to predict earnings
management among accepted firms in Tehran securities exchange. Accordingly, the third hypothesis is
confirmed and other ones are rejected.
IX. Conclusions
To test research hypotheses panel data estimation and multi-variable regression applying a sample
including 90 firms in Tehran securities exchange during 2008 to 2012 were used. Obtained results are presented
for each hypothesis. Research includes four multi-variable regression models. To choose appropriate models
Chow and Haussmann tests were applied in using panel data analysis.
Performance models are known as Kothari models and they have been presented because of Jones’s
model completion. All mentioned models have been estimated and results were compared. Comparing adjusted
determining coefficients obtained from models estimation showed that the third model has had the highest
determining coefficient. Thus, regarding the relevant data of Tehran securities exchange, it is the most efficient
model to estimate earnings management. Accordingly, the third hypothesis is confirmed and other ones are
rejected. Results obtained in this research are consistent with results of Wu (2014). He compared linear earnings
management models in Taiwan and concluded that Kothari model is the most efficient model.
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